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SEC Charges LPL OSJ for Skirting Trading Fees, Recommending Higher-Cost Funds

The $3.6 billion HighPoint Advisor Group agreed to pay more than $760,000 and will also help return funds to harmed clients, according to the SEC order.

Downers Grove, Ill.–based firm HighPoint Advisor Group, an office of supervisory jurisdiction of LPL Financial, settled charges with the Securities and Exchange Commission that the $3.6 billion RIA avoided paying transaction fees on mutual funds by investing clients in higher-cost share classes.

As part of the mutual agreement, HighPoint did not admit nor deny the SEC’s findings, but it did agree to a censure and a cease-and-desist order, and will pay more than $760,000 in fines.

According to the commission’s order, HighPoint managed a program that charged a single “wrap” fee for advisory, brokerage and administrative services. Between at least January 2014 and 2019, HighPoint would often recommend mutual funds for clients in those wrap accounts, and would be responsible for paying transaction fees, according to the agreement with its clearing firm.

But the agreement meant HighPoint investment advisors would have transaction fees for client accounts in the wrap program deducted from their quarterly distributions, resulting in a conflict of interest. IARs would not have to suffer such fees by recommending share classes without transaction fees. The clearing firm often offered both types of shares for the same mutual fund, though the nontransaction fee (NTF) shares tended to have higher expense ratios because of 12b-1 fees.

“Although neither HighPoint nor its IARs received the 12b-1 fees paid to the Clearing Firm, HighPoint and its IARs had a conflict of interest when recommending NTF shares to wrap program clients because NTF shares avoided transaction fees that HighPoint and its IARs were responsible for paying,” the order read.

Therefore, the firm recommended some clients purchase the NTF shares when more affordable options (which included transaction fees) were available, and they also allegedly failed to disclose this conflict on their Form ADV. The firm also failed to meet its duty of care obligations by recommending clients invest in certain share classes with identical aims to less-costly options, according to the commission. HighPoint did not return a request for comment as of press time.

HighPoint did make proactive efforts to address its issues, according to the SEC; starting in March 2018, before the commission reached out, the firm updated its compliance procedures to require IARs to recommend only the lowest-cost available share class and ordered a review of all client accounts. Advisors were also required to convert existing share class investments to the most affordable option. 

According to the commission, HighPoint certified that it had changed all its disclosure documents and moved client funds to different share classes, if necessary. The firm also agreed to distribute funds to harmed clients.

Last February, HighPoint Planning Partners announced it would be joining forces with another Downers Grove, Ill.–based firm, Professional Wealth Advisors, creating a hybrid RIA platform with more than $8.5 billion in assets and supporting more than 200 advisors.

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